Getting Behind Buffett's 'Tax the Rich' Manifesto

The billionaire's request to increase taxes on the rich goes viral

On Monday, a solemn plea by one of the country's richest men to have his taxes raised elevated the subject of taxing America's uber-wealthy to a new level. In a New York Times column titled "Stop Coddling the Super-Rich," billionaire investor and Berkshire Hathaway CEO Warren Buffett explains how his secretary is taxed under a higher rate than he is:

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent...

The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

Buffett proposes raising taxes on those making more than $1 million and an additional increase for those making more than $10 million. The column made a big splash on the Web, soaring Buffett's name to number 2 on Google Trends, a record of keyword searches. What does America's punditocracy think? Here are some of the reactions:

The numbers speak for themselves, tweets New York University economist Nouriel Roubini: "The Second Gilded Age: share of income earned by top 1% is now back to 1929 level at the onset of the Great Depression... Tax rate on capital gains, dividends, carried interest:15%.On estates = 0%. Tax rate on workers with income above $34.5k is 25%. Regressive!"

Buffett's logic is plainly clear, writes Henry Blodget at Business Insider:

When presented with these facts, those who argue against tax increases on the super-rich--or, even more absurdly, for more tax cuts--often point to President Ronald Reagan, observing that his tax cuts for the wealthy helped usher in a long economic boom.

This ignores the point that Reagan also raised taxes. And it ignores how high tax rates on super-rich people were when Reagan cut them: In 1980, the top bracket was a startling 70%. It also ignores how Bill Clinton raised taxes and took the US budget from the perpetual deficits of the Reagan years to a surplus. It ignores how George Bush's tax cuts helped plunge the budget back into a deficit and lead to the worst recession since the Depression. It ignores how the US prospered all through the 1950s and 1960s, when marginal tax rates were super-high. And so on.

This would require Democratic backbone, writes Jed Lewison at Daily Kos:

By any reasonably metric, this would represent a fine compromise between Democrats and Republicans. But it's not going to happen unless Democrats—and I'm not just talking about President Obama, but also the Congressional Democrats who punted on taxes before the 2010 election—stop coddling the GOP.

...And GOP reasonableness, writes Steve Benen at The Washington Monthly:

Remember, as far as congressional Republicans are concerned, what Buffett recommends is tantamount to radical socialism. Any proposal to increase taxes on anyone by any amount — even on the wealthiest of the wealthiest of the wealthy — is an automatic deal-breaker in GOP circles. Indeed, under House Budget Committee Chairman Paul Ryan’s plan, widely endorsed by Republicans everywhere, what the rich really need is another tax break.

But Buffett misses a big point, writes Dan Indiviglio at The Atlantic:

Buffett fails to mention that the corporations who issued the stock he's talking about face an income tax of their own. Most public companies, if they're making more than $18.3 million per year, pay 35%. This is also the rate for the top individual tax bracket.

So think about a dividend. The income that a corporation makes is first taxed at 35%. Then, a dividend is paid out -- after taxes. If you obtain that dividend, should it be taxed? Well, it already was -- at 35%. For this reason, it makes sense to tax it at 0%. If you tax it more, then you are taxing the income it produced twice.

There's a reason for the status quo, James Joyner at Outside the Beltway writes:

The rationale behind these provisions in the tax code is actually defensible. We want people to save money and  invest in stocks, since it keeps the flow of capital to the economy flowing and provides a nice retirement cushion under normal circumstances. It would be strange, indeed, to treat money earned by deferring gratification or taking risk over time in the same way as wage income; it would be better just to invest in bonds or spend the money.  But that rationale doesn’t hold for people who make their primary living buying and selling stocks. For them, those earnings are essentially wages.